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Since 1990 the FTSE All-Share Index has seen an average return of 0.6% in the month of November; with positive returns in 15 of the last 28 years. This ranks November in the middle of the 12 months for equity performance. However, in recent years the market has been noticeably weak in November ­in the last 12 years the Index has only seen positive returns in the month in four years.

Six month effect

The significant feature of November is that it marks the start of the strong six-month period of the year (November to April ­ an aspect of the Sell in May effect). In other words, investors should be increasing exposure to the market this month (if they haven’t already done so in October).

A feature of November in recent years has been its low volatility, since year 2000 the volatility of shares in November has been the lowest of any month in the year.

The average November

In an average November, the market rises in the first three days, but those gains are then given up in the following few days. In the middle of the month prices increase and then fall back again, before finally rising strongly in the last seven days of the month.

Sectors

In the last ten years the FTSE 350 sectors that have performed strongly in November have been: Food Producers, Aerospace & Defense, and Media. While the weak sectors have been: Oil Equipment, Services & Distribution, Real Estate Investment Trusts, and Industrial Transportation.

Shares

At the company level, FTSE 350 shares that have tended to be strong in November over the past ten years have been: CRH [CRH], Shire [SHP], Britvic [BVIC], Babcock International Group [BAB], and Compass Group [CPG]. FTSE 350 shares that been weak are: Galliford Try [GFRD], Royal Bank of Scotland Group [RBS], Ashmore Group [ASHM], Hochschild Mining [HOC], and Petrofac Ltd [PFC].

Elsewhere, November has tended to be a strong month for gold and weak for the pound against the dollar.

Diary

This is a busy month for interim results: 64 companies from the FTSE 350 make their announcements in November.

Since 1990 the FTSE All-Share Index has seen an average return of 0.7% in the month of November; with positive returns in 15 of the last 27 years. This ranks November in the middle of the 12 months for equity performance. However, in recent years the market has been noticeably weak in November ­in the last 11 years the Index has only seen positive returns in the month in three years.

Sell in May…

The significant feature of November is that it marks the start of the strong six-month period of the year (November to April ­ an aspect of the Sell in May effect). In other words, investors should be increasing exposure to the market this month (if they haven’t already done so in October).

Sectors

In the last ten years the FTSE 350 sectors that have performed strongly in November have been: Beverages, Electronic & Electrical Equipment, Fixed Line Telecommunications, Food Producers, Life Insurance, and Travel & Leisure. While the weak sectors have been: Aerospace & Defense, Banks, Oil & Gas Producers, and Real Estate Investment Trusts.

FOMC announcements

Since 1981 the US Federal Open Market Committee (FOMC) has had eight scheduled meetings per year, the timing of which is quite irregular. Each meeting is two days long, with a policy statement released at the end of the second day (1 November this month). Many academic papers have studied the effect of these FOMC announcements on financial markets. One such paper found large average excess returns on U.S. equities in the 24-hour period immediately before the announcements (an effect the paper called the “Pre-FOMC Announcement Drift”). According to this paper, “about 80% of annual realized excess stock returns since 1994 are accounted for by the pre-FOMC announcement drift”.

A quite amazing finding!

It might be added that a similar effect can be seen for the UK equity market as well. The average daily return for the UK market in the 24 hours before the FOMC statement is 0.33%, over ten times greater than the average daily return on all other days.

November tends to be one of the quieter month for shares. After the sometimes dramatic moves in September and October, and before the traditional end-of-year rally in December, investors seem to take a pause in November. The month currently has the lowest volatility of monthly returns of any month in the year. Of course, this year may be different with the US presidential elections this month.

As can be seen in the accompanying chart, the market used to be strong in November for many years prior to 2005, but since then the market has been more likely to fall than rise in the month and has seen an average month return of -0.6%.

An average November

As can be seen in the following chart, on average the market tends to rise the first four days of the month, this could be influenced by investors buying into the market anticipating the strong six-month period of the year November to April (the Sell in May effect). After that the market then gives up those gains over the following few days, rises again, falls back, until finally increasing quite strongly over the final seven trading days of the month.

Shares

In the last ten years the FTSE 350 shares that have performed best in November have been Babcock International Group [BAB], Compass Group [CPG], CRH [CRH], BT Group [BT.A], and Greene King [GNK]; Babcock, Compass and CRH have only had negative returns in November in one year since 2006. An equally-weighted portfolio of these five shares would have out-performed the FTSE 350 index by an average of 5.2 percentage points each year since 2006. While the FTSE 350 shares with the worst November performance over the last ten years have been Vedanta Resources [VED], Royal Bank of Scotland Group (The) [RBS], Tullett Prebon [TLPR], Ashmore Group [ASHM], and Standard Chartered [STAN].

Elsewhere, November has been a strong month for gold and weak for oil and GBPUSD.

Diary

This is a busy month for interim results: 64 companies from the FTSE 350 make their announcements this month.

The big event this month will obviously be the US presidential election on 8 November. Analysis of the impact of these presidential elections on the UK market since 1972 shows that on average UK shares tends to trade stronger as the election day approaches, and then tails off in the few days following the election. The strongest day of the period has been the election day itself.

Shares that have been strong November

The following table lists the five FTSE 350 shares that have the best returns in November over the last ten years. For example, Babcock has an average return of 4.6% for the month of November. Each stock has risen in at least eight of the past ten years in November.

A portfolio of these four stocks would have out-performed the FTSE 350 Index in November in nine of the last ten years with an average out-performance of 5.2 percentage points each November.

Shares that have been weak November

The following table lists the five FTSE 350 shares that have the worst returns in November over the last ten years. For example, Vedanta Reseources has an average return of -10.5% for the month of November. Each stock has fallen in at least eight of the past ten years in November.

Of the 12 months of the years, market performance in November is only middling. Since 1970 the FTSE All Share Index has risen in 60% of years in November, with an average return over the period of 0.3%. This gives it a rank of 6th place for monthly performance. From 1980 its relative performance had been steadily increasing, but that trend reversed in 2006 – as can be seen in the accompanying chart, the market has risen only three times in November in the last nine years.

Sell in May

The significant feature of November is that it marks the start of the strong six-month period of the year (November to April). In other words, having reduced exposure to equities in May (”Sell in May and go away…”) investors should now be increasing exposure to the market this month (if they haven’t already done so in October).

The average November

On average the market tends to rise the first four days of the month, then to give up those gains over the following few days, rise again, fall back, until finally increasing quite strongly over the final seven trading days of the month.

Sectors

In the last twenty years the sectors that have been strong in November have been: Beverages, Fixed Line Telecommunications, Food Producers, Life Insurance, Media, Mining, Technology Hardware & Equipment and Travel & Leisure. While the weak sectors have been: Aerospace & Defense, Banks, General Industrials, and Oil & Gas Producers.

Shares

At the company level, the following FTSE 350 shares have performed best in November over the last ten years: Babcock International, Compass Group, Greene King, and Shire; the shares of these companies have all risen in November for nine of the past ten years. The shares that don’t seem to like November are: Tullett Prebon, Lloyds Banking, and CSR. And this is a busy month for interim results: 62 companies from the FTSE 350 make their announcements this month.

Elsewhere, November has been a strong month for gold and weak for oil and GBPUSD.

This is a busy month for interim results: 63 companies from the FTSE 350 make their announcements this month.

Since 1970 the FTSE All Share Index has risen in 59% of years in November, with an average return over the period of 0.3%. This gives it a rank of 6th place for monthly performance. From 1980 its relative performance had been steadily increasing, but that trend reversed in 2006 – as can be seen in the accompanying chart, the market has risen only twice in November in the last eight years.

Although the performance of the market in November is only average, the significant feature of November is that it marks the start of the strong six-month period of the year (November to April). In other words, having reduced exposure to equities in May (”Sell in May and go away…”) investors should now be increasing exposure to the market this month (if they haven’t already done so in October).

Average month

On average the market tends to rise the first three days of the month, then to give up those gains over the following few days, rise again, fall back, until finally increasing quite strongly over the final seven trading days of the month.

Sectors

In the last twenty years the sectors that have been strong in November have been: Beverages, Electronic & Electrical Equipment, Fixed Line Telecommunications, Food Producers, Life Insurance, Media, Mining, Technology Hardware & Equipment and Travel & Leisure. While the weak sectors have been: Aerospace & Defense, Banks, General Industrials, Oil & Gas Producers and Real Estate Investment Trusts.

Companies

For companies, the following FTSE 350 shares have performed best in November over the last ten years: Greene King, Babcock International, Shire, and Compass; the shares of these companies have all risen in November for nine of the past ten years. The shares that don’t seem to like November are: Tullett Prebon, Lloyds Banking, and CSR. And this is a busy month for interim results: 62 companies from the FTSE 350 make their announcements this month.

Elsewhere, November has been a strong month for gold and weak for GBPUSD

Diary

Dates to watch for this month are: 5 Nov – MPC interest rate announcement, 6 Nov – US Nonfarm payroll report, and 26 Nov – Thanksgiving Day (US), NYSE closed. And, finally, a couple of anniversaries: on 14 Nov 2007 Tesco hit its all time high (since when it has fallen 65% – at the time of writing), and 12 Nov will be the 30th anniversary of the replacement of one pound notes with coins.

Shares that like November

The following table lists the four FTSE 350 shares that have the best returns in November over the last ten years. For example, Greene King has an average return of 6.0% for the month of November. Each stock has risen in at least nine of the past ten years in November.

Shares that dislike November

The following table lists the three FTSE 350 shares that have the worst returns in November over the last ten years. For example, Tullet Prebon has an average return of -7.3% for the month of November. All three stocks have fallen in eight of the past ten years in November.

An equally-weighted portfolio of the above strong November stocks would have out-performed every year an equally-weighted portfolio of the above weak November stocks by an average of 10.7 percentage points in November for the past ten years.